Financial oversight package heads to House floor next week

Network News

A key congressional committee approved the final pieces of sweeping legislation Wednesday to overhaul the nation's financial regulatory system, setting the stage for a vote in the House of Representatives next week on one of President Obama's top priorities.

The approval of two bills by the House Financial Services Committee marked a significant, if incremental, victory for the administration, which has implored lawmakers to act with urgency in fixing regulatory flaws that contributed to the economic crisis.

Although the reform package is headed to the House floor, it was not sent quickly or easily.

Members of the Congressional Black Caucus, which had already delayed the legislation's passage, staged a last-minute boycott of Wednesday's committee vote to draw further attention to their frustration with the administration's handling of the economy. But committee Chairman Barney Frank (D-Mass.) moved forward in their absence and got enough support for a bill aimed at limiting systemic risks posed by large, troubled financial firms for it to pass by a 31 to 27 vote along party lines. A separate bill that would have created an office to gather information on the insurance industry passed on a voice vote.

The committee previously approved a series of measures dealing with financial regulation, including bills to establish oversight of the vast derivatives market, enhance investor protections, and create an agency to regulate credit cards, mortgages and other forms of loans to consumers.

Frank has spent recent months steering his financial reform package through a legislative minefield. He faced stiff opposition from Republicans, conflicting pressures from industry lobbyists and consumer advocates, and occasional conflicts among members of his own party.

He succeeded in part by making concessions. On the new consumer agency, for example, Frank secured a majority by allowing partial exemptions for community banks, auto dealers and various non-financial businesses. On the systemic risk bill, he agreed to support a proposal that financial companies pay into a fund that would be tapped in the event of a major failure.

Frank also lost his share of battles, such as an amendment pushed by Rep. Ron Paul (R-Tex.) and supported by more than 300 other lawmakers that would subject the Federal Reserve to comprehensive audits, including inquiries into decisions on interest rates and interactions with foreign central banks. Frank and others said they fear that such a policy could threaten the Fed's independence in setting monetary policy, but the amendment sailed through.

"At this point, my guess is that it will not be changed," Frank said Wednesday when asked about Paul's amendment. "You never know what's going to happen."

That certainly has proven accurate. Frank seemed caught off-guard two weeks ago when Congressional Black Caucus members -- 10 of whom serve on his committee -- unexpectedly blocked the systemic risk vote to draw attention to concerns about the economy. The protest followed a meeting last month during which they shared their frustrations with Treasury Secretary Timothy F. Geithner and White House Chief of Staff Rahm Emanuel.

Frank learned Wednesday morning that caucus members would boycott the rescheduled vote, making the final tally much closer than it might otherwise have been.

"Since last September, we have continuously voted for bailouts and reform for the very institutions that created this devastation, without properly protecting the African American community or small business. That stops today," said Rep. Maxine Waters (D-Calif.). "While we appreciate the need for the expansion of regulatory authority, we can no longer afford for our public policy to be defined by the worldview of Wall Street."

Waters declined to say how -- or whether -- caucus members would vote on the reform proposal when it reaches the House floor.

"We're prepared to . . . leverage opportunities for our community. This particular moment provides an opportunity," Waters said Wednesday. "If we are going to support extraordinary powers for these regulatory agencies, we have to be sure that these powers will be used to benefit small and minority businesses."

Frank said he would continue to work closely with caucus members. "When you're in a legislative body, you understand that you have an ongoing set of relationships, and people can be your best friends one minute and opposed at another time," he said. "There will be no interference in our ability to continue to work together, because we are in agreement on a very wide range of issues."

Even after Wednesday's successful committee vote, the administration's push to revamp the financial regulatory system remains far from complete. More debate on the package lies ahead in the full House.

In addition, the Senate Banking Committee only recently began to consider its bill, introduced last month by its chairman, Sen. Christopher J. Dodd (D-Conn.) It differs in significant ways from Frank's legislation and the administration's original vision. Dodd has expressed a desire to reach bipartisan agreement, but Republicans have declined to endorse his version of reform, and a number of Democrats have expressed reservations about parts of the plan. That debate is set to carry over into next year.